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Stablecoin Primer Section 2 — Stablecoin landscape

So are people actually using stablecoins?

Stablecoins around the World by diedamlas

The landscape

Market cap growth of stablecoins. Source

Product-market fit indicators from around the world

Use cases

Stablecoin use cases in fiat and crypto economies by diedamlas

Alternative to fiat

  1. Safe haven from fiat money’s inflation — As we established in the examples of Turkey and Argentina, in inflation-plagued countries the local currency becomes unusable — kind of like shitcoins. People in such countries can easily trade their savings in their local currency for stablecoins via fiat-to-crypto exchanges.
  2. Peer-to-peer transactions — Stablecoins provide a fast and easy way for two parties to send and receive money from each other. Users can simply send stablecoins from their wallets (e.g., Metamask) to the recipient’s public address.
  3. Payments — Traditional payment channels involve various intermediaries including commercial bank payment networks and card networks. For orchestrating all these parties, payment providers charge a flat fee plus an additional 1.5% — 3% charge for each transaction. Stablecoin based payments, however, completely streamlines the traditional payments process. Relying on blockchain technology, stablecoin payments disintermediate the entire payments process, reduce counterparty risk, and cost much less than traditional channels. See exciting updates from Solana and Circle allowing merchants to take stablecoin payments at very low costs.
  4. Cross-border payments — According to the World Bank, sending remittances across borders costs an average of 6.30% of the amount sent. So a user wanting to send $300 via traditional channels would be charged around $19; the same transaction with stablecoins costs less than $1.
  5. Savings alternative to negative ratesCentral banks may sometimes offer negative interest rates, such as ECB’s current -0.5% rate. This means that when people deposit money into their savings account at their banks, they will be charged a fee instead of earning interest income. While this is a measure to disincentivize excessive saving, people who still want to save can rely on stablecoins to preserve their savings.
  6. Money Laundering — Given the ability to conduct any size of transaction globally in a pseudo-anonymous way using stablecoins, it is not difficult to think that money launderers could be charmed by this. While examples of money laundering using stablecoins exist, increased mainstream adoption should hopefully dwarf this use case.

Lifeblood of the crypto economy

  1. Safe haven from crypto’s volatility — Before stablecoins existed, crypto investors had to convert their on-chain holdings back into fiat currency so that they would avoid losing their wealth due to volatility (e.g., 20 Jan 2022 sell-off). Now, investors can rely on stablecoins to preserve their wealth on-chain and not have to deal with burdensome crypto-to-fiat conversions.
  2. Currency to move value between exchanges — Not every crypto exchange offers all tokens. Users can convert their fiat money to stablecoins via fiat-to-crypto exchanges (e.g., Coinbase) and send these stablecoins to their wallet at a crypto-to-crypto exchange (e.g., Binance), which may offer their desired token.
  3. Lend and borrow in DeFi dApps — DeFi protocols such as Maker Protocol allow for participants to take loans by depositing their stablecoins. Before stablecoins existed, such protocols relied on overcollateralizing loans using volatile tokens like ether, resulting in capital inefficient and risky systems. Thanks to stablecoin collaterals, DeFi protocols can now offer fixed returns, which may attract a completely new user base to the ecosystem (more on this in Section 4). Similarly, stablecoins can be lent in DeFi protocols such as Compound in exchange for stable returns (i.e., APYs) often beating rates provided by traditional savings accounts.
  4. Bootstrap liquidity in DEXs — Decentralized exchanges (DEXs) like Uniswap rely on mechanisms called automated market makers (AMM) that algorithmically define clearing prices of assets in their liquidity pools. These exchanges need as much liquidity as possible to execute trades at the desired prices with little price slippage. Stablecoins like USDT and DAI are widely used by DEXs to bootstrap liquidity.
  5. Salary payments in Web3 companies — Some DAOs may pay their full time contributors’ salaries in stablecoins, especially in the early days when their own DAO token does not yet have value.



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Osman Sarman

Engineer and ex-consultant exploring stablecoins, twitter: @_namsso_